SHOW ME THE MONEY! Competing considerations when seeking security for costs

A recent judgment delivered by the Honourable Justice Crow in Supreme Court of Queensland matter Murphy Operator Pty Ltd & Others v Gladstone Ports Corporation Limited (GPC) provides a useful reminder of the well-established principles surrounding security for costs, and a helpful framework to allow a defendant to seek security in a timely and efficient manner.^[1]

The decision emphasises the importance of having a comprehensive and robust fee estimate to support a defendant’s application for security, and highlights (once again) that:

• parties should not be devoting extensive time and resources to disputes about security, particularly in the context of large-scale litigation supported by litigation funding arrangements; and
• the Court is unlikely to favour technical arguments in response to an application for security that are not supported by cogent evidence or would require the Court to engage in a costs assessment exercise.

His Honour also made orders expressly reserving the parties’ rights in relation to future questions of costs, including for the defendant to seek costs orders directly against the plaintiffs’ litigation funder. 

With litigation funded plaintiffs commonly preferring to provide security in the form of deeds of indemnity from after-the-event insurers, such reservations of rights are a prudent safeguard against any unmeritorious suggestion that a security deed might operate as a cap on the funder’s liability for costs at the conclusion of a proceeding.

Affirmation of established principles

In his judgment, Justice Crow granted GPC a sixth tranche of security. In doing so, his Honour reiterated the principles previously articulated in his earlier decision Murphy Operator Pty Ltd v Gladstone Ports Corporation (No 6) [2020] QSC 192.^[2]

His Honour emphasised that the exercise of the power to award security for costs should be applied in accordance with rule 5 of the Uniform Civil Procedure Rules 1999,^[3] having regard to the now well-established principles, which include that:

1. parties should not devote extensive resources to questions of security, and the level of evidence a defendant is required to present is less than that which would be required to include in a costs statement for costs already incurred or in respect of a final cost assessment;
2. assessing likely costs in large-scale litigation is a complex matter involving elements of uncertainty, and for this reason a “broad brush” and pragmatic approach (particularly where a funder is involved), rather than mathematical precision, is required; and
3. the court’s task is to protect against the risk that an order for party and party costs in the defendant’s favour might not be satisfied, and in doing so the court will consider the proportionality of the security sought to the quantum of the claim.

GPC relied upon a solicitor’s affidavit that set out detailed estimates of the costs to be incurred across various phases of the litigation, supported by an explanation of the specific methodology, rationale and other contextual considerations used to arrive at those estimates. Among other things, in deriving the quantum of security it sought, GPC applied a series of cascading discounts designed to reflect the costs it may recover on a party and party basis, and a global discount to account for the inherent uncertainty in the task of drawing the estimates.

While the plaintiffs accepted that they ought to provide security and did not explicitly challenge GPC’s supporting evidence, they submitted that GPC’s estimates were “excessive”, and that security should be granted for lesser sums reflecting reduced cost estimates based on more significant discounts. The plaintiffs also sought to raise technical arguments to exclude certain categories of costs, including on the basis that some work was contemplated by a previous tranche of security such that GPC was not entitled to an uplift.

The Court did not favour the plaintiffs’ approach. Ultimately, His Honour found GPC’s costs estimates to be reasonable and reliable having regard to GPC’s affidavit evidence before him and ordered the sum of security sought by GPC.

Further, the Plaintiffs were ordered to pay GPC’s costs of its application in a fixed amount, which highlights the benefits to both parties in agreeing on security arrangements as soon as possible prior to making a formal application, to avoid the expense of preparing the necessary evidence.

The impact of security on recovering costs in funded litigation 

The position in Australia is that the provision of security for costs does not limit a successful defendant’s ability to recover its costs of a proceeding over and above the amount of such security.  In granting GPC its sixth tranche of security, Justice Crow expressly noted GPC’s right to pursue the plaintiffs’ litigation funder for the full value of any costs order made against the plaintiffs that may exceed the security amount.

It is also clear that an order for security for costs does not preclude a successful defendant from seeking a direct costs order against the third-party litigation funder. The Court has broad discretionary powers which allow it to make such an order at any stage of a proceeding, and often this will be an appropriate course to ensure there can be no doubt as to who bears the liability for the defendant’s costs as between the funder and the plaintiffs.

Notwithstanding, out of an abundance of caution (and particularly where the costs of the proceeding will be a significant sum), a party seeking security should ensure that the terms of any deed of indemnity and the orders granting security do not infringe upon the defendant's rights to pursue its costs directly against the funder at the conclusion of the proceedings, including any amounts exceeding the quantum of security provided. In that instance, the defendant must also ensure that there is a direct path to enforcement of a cost order against the funder.